The Novel corona virus has affected the world in devastating ways. In addition to the health, political, cultural effects on Americans and the world population, it has devastated the world economy. The U. S. GDP (Y) collapsed by as much as 33% and the unemployment rate reached as high as 16%. To offset these economic adversities, the Federal government conducted fiscal policy by significantly increasing its expenditures (G). This effort was as an attempt to allow the household sector to maintain its consumer expenditures (C) constant. Assume the US economy begins with equilibrium interest rate, r*, in the loanable funds market and the real exchange rate, e* in the foreign exchange market. Use the model of loanable funds to determine the net effect (directional) on:

(2 pts) National savings, S

(2 pts) Real interest rates, r

(2 pts) National investments, I

(2 pts) Net foreign investments, NFI

(2 pts) Real exchange rate, e

(2 pts) Net exports, NX

(3 pts) If the Federal Reserve wanted to keep the interest rates constant through this pandemic (offset the original effect in part b above), it could do so by increasing the money supply (expansionary policy) or decreasing it (contractionary policy). Which monetary policy would you subscribe, and why?